Provinces are given spending lifeline as Treasury reverses cuts proposed in 2023

Planned cuts to the provincial budgets outlined in November have been reversed. Instead, billions are now being allocated to pay for salary increases of essential personnel such as policemen, teachers, nurses and prosecutors.

Despite the reversal, the 2.6% increase in the equitable share budget, which constitutes the lion’s share of provincial revenue, still falls below the inflation rate. This means that in real terms, there is no growth even as provinces continue to provide critical social services such as education, health and policing.

The situation is still much improved considering provinces were facing stringent budget cuts when the medium-term budget policy statement (MTBPS) was announced in October. Overall funding for provinces of R729.5m is above what had been estimated in the MTBPS (R706.4m).

Even better, the public sector wage increases, which provinces had to fund out of their budget, will now be funded with an additional R105.5bn from the Treasury over the next three years.

This means R57.6bn has effectively been added back to the provincial budgets, with a focus on departments that have high numbers of employees.

This is because money was going to be diverted from spending on goods and services such as textbooks or medicines, to salaries after public sector salaries increased by 7.5% in 2023/24, with a consumer price index (CPI) linked increase for 2024/25 and as little was allocated for this.

Treasury director-general Duncan Pieterse said the Treasury was “still on the same broad path to achieving fiscal consolidation as we were in November, but critical resources are being made to fully implement the wage bill”.

Additionally, R3.9bn that had previously been allocated to help with the increases has been shifted towards grants in the education and health sector.

However, the increases are still below inflation. The equitable share grant to provinces, of R600.5m has increased at way below the 4.9% estimated consumer price inflation that the Treasury predicts for the 2024 financial year, and way below increases in water and power that many schools and hospitals need to pay for.

To ensure service delivery is not negatively affected by this, the Treasury says in its Budget Review that provinces and municipalities need to embark on “strategic planning, structural reforms and robust financial management”.

The equitable share portion allocated to each province is based on a formula, which the Treasury says takes into account both the need for poverty alleviation and population numbers. But even as the Western Cape has had growth in semigration from Gauteng and the Eastern Cape, its equitable share budget increased just 2.4%.

The Gauteng budget increased 2.8% and the Northern Cape’s budget 3.6%, but it is a substantially lower amount.

Provincial budgets also cover the provision of education to 13.4-million learners and how this is calculated is currently under review, the Treasury said.

Both the Western Cape and Gauteng keep having to expand facilities as families from rural provinces flock to urban schools in a bid to improve educational prospects.

The provinces have questioned whether they are allocated sufficient funds based on actual pupil numbers.

Provincial and National Treasury task teams have been reviewing how funding for education is allocated, and a change to this budget — taking into account enrolment figures — is expected in 2025, according to the Budget Review.

The government also increased funding for conditional grants by 6.3% to R129, which account for just over 16% of the provincial budget. These are grants linked to specific programmes such as school nutrition programmes, road maintenance and early childhood development.

The Treasury also back-pedalled on planned budget cuts to local government and increased the municipal equitable share by 4.8% to R101.2bn. But it had harsh words for municipalities, saying spending was often “inefficient”. The Treasury said local governments had made “little progress” with the R61.7bn allocated in 2023 to improve the quality and reliability of electricity, water and sewage after years of underinvestment in infrastructure.

The Treasury also said that the salary increases of 5.4% at municipalities required the diversion of funds from local government priorities to pay salaries. It said that this was “hard to justify, especially when productivity has been low”.